As Pinterest Grows, Startup Seeks $2.5 Billion Valuation

By

Pui-Wing Tam And

Spencer E. Ante

Updated Feb. 5, 2013 8:27 p.m. ET

Pinterest Inc. is getting ready to add a missing piece to its business: revenue.

For most of last year, the online scrapbooking site was racing to keep up with a growth eruption that took global user visits to its website to 48 million in December, up from 9 million a year earlier, according to research firm comScore Inc. The hype was so intense that Pinterest—which had only about 20 employees early last year along with its young founders—was sometimes caught unprepared to answer even basic questions.

Inside Pinterest's Headquarters

Pinterest co-founders Evan Sharp, left, and Ben Silbermann posed for a photograph at the company's San Francisco headquarters in January. Jason Henry for The Wall Street Journal

But over the last 12 months, Chief Executive Ben Silbermann has built up Pinterest's employee ranks. The company now has around 100 employees—including hires from Facebook Inc.,Google Inc. and Amazon.com Inc. It moved from a tiny Palo Alto, Calif., office to a 58,000-square-foot warehouselike space in San Francisco. It beefed up its tech systems, rolled out new mobile apps and began improving some of the social site's features.

Now Pinterest—a free site that allows people to share images of projects or objects of interest by "pinning" pictures online—has reached a point where it can start to make revenue a priority. The company is now studying a potential advertising system. It is also building up its relationships with businesses to learn how Pinterest traffic can eventually convert to sales of goods, from which the startup may eventually be able to take a cut.

"A lot of last year was keeping up with growth [and] the big change with touch-screen devices," said Mr. Silbermann, 30 years old. This year, "we're building foundations to monetize."

ENLARGE

Pinterest now has around 100 employees, up from about 20 last year.
Jason Henry for The Wall Street Journal

The company's continued growth, engagement and business potential has attracted growing interest from investors who have put sky-high valuations on a company with little to no revenue that is unprofitable. Pinterest is in talks to raise a new round of financing at a $2 billion to $2.5 billion valuation, said people familiar with the matter. No funding deal has closed, one of these people said. The company last raised $100 million in a May 2012 financing led by Japanese e-commerce company Rakuten Inc., taking its total capital raised to $140 million. At the time, Pinterest—whose other investors include Bessemer Venture Partners, FirstMark Capital and Andreessen Horowitz—was valued at $1.5 billion.

"They've gotten past the point of being successful with consumers in a big way [and] at some point, the business has to make money," said Jeremy Levine, a Bessemer venture capitalist who also sits on Pinterest's board.

In the last year, valuations for many consumer Internet companies such as Facebook, Zynga Inc. and Groupon Inc. have come down as public investors expressed skepticism over their nascent business models.

Since October, Pinterest has created a team of four people whose job it is to interact daily with companies, learning about what is working—and what is not—online. In November, Pinterest rolled out "business" accounts that allow companies to use their corporate name on their pinboard and to verify that they link to an official corporate website. Pinterest has also told businesses it will introduce new data-analytics tools, so companies can keep better track of their Pinterest traffic and how users are interacting with the content.

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In studying which advertising system to introduce, Mr. Silbermann declined to go into detail, but one feature the company plans to unveil this year is called "suggestions," which is a way for people who use Pinterest regularly to serendipitously discover other content, said Pinterest executives. For example, someone who adds pictures of a swimsuit to their Pinterest pinboard might also see a "suggestion" for a Hawaiian resort.

Pinterest "is a marketing platform," said Lawrence Lenihan, founder and managing director with FirstMark Capital, which invested early in Pinterest. "There's a lot more to go and lot more to figure out."

Meredith Corp.'s Allrecipes.com has witnessed Pinterest's growing interest in building business relationships. Esmee Williams, Allrecipes.com's vice president of brand marketing, said her site launched a Pinterest pinboard in 2011 and added the "Pin It" button last May. After Allrecipes.com saw a surge in traffic from Pinterest users, she emailed the startup to talk last June—but heard nothing back.

In August, Pinterest finally responded, said Ms. Williams. That triggered a series of calls between the two companies, and a visit to Pinterest's San Francisco headquarters in September. Today, Pinterest gives Allrecipes.com previews of some of its software-coding changes, and some partnership opportunities are brewing.

Pinterest is now "quick to respond and give feedback," said Ms. Williams. Pinterest recently generated 6.5 times more referral traffic to Allrecipes.com than social-networking giant Facebook, she added.

Pinterest said it also plans to launch international sites this year, and is working on its mobile apps so consumers can take advantage of some of their devices' features—such as a camera—and more easily incorporate on-the-go content like photos. The company expects to expand to around 200 employees by the end of the year.

"Pinterest needs to be way easier to use," said co-founder Evan Sharp, 30, who created the site's grid-like design. "In 2013, we want to be a service that's highly personalized."

Many businesses said they are eager for more tools and services from Pinterest, since consumers who flock to the site tend to click through to e-commerce sites. Last Cyber Monday, for example, the number of referrals that came from Pinterest more than doubled from the year-ago period, according to a report by Adobe Systems. Referrals from Facebook and Twitter Inc. were flat, and other social media services saw a 50% decline in referrals, the report said.

Businesses said they also have gravitated to Pinterest because "pinned" content has a different life cycle than what is posted on Facebook and Twitter. Brian Madden. executive director of social media for Hearst Corp.'s Hearst Digital Media, said content that Hearst puts onto Pinterest can resurface months later when people continue to discover it. In contrast, posts on Facebook and Twitter tweets produce "a lot of initial interaction" before fading.

"The longevity of content [on Pinterest] is very valuable to us," said Mr. Madden. He adds that in December, Hearst got more online traffic through Pinterest than Facebook and Twitter combined. Overall, 3% to 5% of traffic to Hearst's various brands was through Pinterest that month, with about 1.5% from Facebook and 1.5% from Twitter, Hearst said.

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